Microsoft’s Xbox group is in a weird place.
An estimated 30 to 50 million Xbox One consoles have been sold, putting Microsoft in a distant second place in the console race behind Sony’s 70-plus million selling PlayStation 4 console. And Nintendo’s Switch console? It’s a runaway success.
In under a year, Nintendo sold over 14 million Switch consoles — it’s the fastest-selling console in US history. Nintendo attributes this success primarily to one thing: A lot of really good games you can only play on the Switch.
“We were able to offer multiple hit titles early on for Nintendo Switch that serve as powerful drivers for hardware sales,” Nintendo president Tatsumi Kimishima said in the company’s latest financial presentation.
The Xbox One, by comparison, isn’t doing so great. On paper, it’s competitive with or outright better than the competition from Sony and Nintendo.
Starting at $200, the Xbox One is low in price, and jammed with great games, to boot. Even the lowest-end model of Xbox One supports HDR, a high-end video technology that makes games look better on TVs that support. It does everything a set-top box like the Apple TV does, like let you watch Netflix — plus it plays high-end blockbuster games.
In reality, though, it’s the console I’m least likely to suggest to any would-be buyer.
If you don’t own any consoles, the PlayStation 4 has many of the same games, like the latest “Assassin’s Creed,” and a bunch of great exclusive games, including the critically-acclaimed “Horizon Zero Dawn.”
Though the Nintendo Switch doesn’t have many third-party blockbusters like “Call of Duty,” it has a big edge in terms of exclusives — there’s no other way to play the latest “Super Mario” games. That’s a pretty big advantage.
And if you already own a PlayStation 4 or PC? There simply aren’t many major Xbox exclusive games that make the Xbox One worth owning.
So, what’s Microsoft going to do? That’s the big question.
Here are some ways they could go:
1. Microsoft could buy a game publisher or development studio, as recently suggested by rumors.
The latest rumors suggest Microsoft is considering an acquisition of some sort — a game development studio or publisher that could bolster Microsoft’s stable of intellectual properties.
The companies most recently rumored as acquisiton targets are as follows:
1. EA (makers of “Madden NFL” and “FIFA,” among many others).
2. Valve (operators of Steam, makers of “DOTA 2” and “Half-Life” and much more).
3. PUBG Corp. (the South Korean subsidiary of Bluehole Studio that makes/manages the very popular “PlayerUnknown’s Battlegrounds”).
But does that make any sense? “Close to zero probability of buying EA,” Wedbush senior analyst Michael Pachter told Business Insider in an email exchange.
There’s a good reason for that, and it’s the same reason that Microsoft’s unlikely to most any of the other major game publishers (like Ubisoft, Activision, Take-Two Interactive, or Bethesda Softworks). EA, like many other major game publishers, has a business that’s dependent on making games for every platform, including Sony’s and Nintendo’s. If Microsoft bought one of these publishers, it would be to keep that publisher’s games for the Xbox platform.
That makes any such proposition a poor business choice. Not only would the publisher cost Microsoft a ton of money up front just to buy, but it would be difficult to make money back on the investment when they’re suddenly limited to only developing for Xbox.
“That would lower EA revenues — by a lot, unlikely to be made up by growth on Xbox — and would make a purchase prohibitively expensive,” Pachter said. Though EA has a large library of intellectual property, losing the revenue of selling that IP on competing platforms would hurt too much. This same scenario applies directly to the other big publishers, from Activision (“Call of Duty”) to Ubisoft (“Assassin’s Creed”).
2. Microsoft could lean in to its PC business and walk away from consoles altogether.
There’s a major initiative at Microsoft’s Xbox division that’s years deep at this point: It’s called “Xbox Play Anywhere.”
The concept is simple: Any game published by Microsoft will come to both Xbox One and Windows 10. If you buy it once, you get it both places. If you save your game one place, you can pick up the game where you left off on the other device. It’s pretty sweet!
And it may very well be the entire future of the Xbox business. “The next platform might end up being the PC,” Pachter said. “The Xbox Anywhere initiative seems to acknowledge that a Windows 10 PC works fine as a game console.”
This doesn’t mean saying goodbye to Xbox as a platform. It could live on in software form, as a user-friendly interface on your TV (for instance). Maybe “Xbox” as we know it becomes a component of another device — an Apple TV or a Roku, perhaps.
In the short term, Microsoft is unlikely to abandon the Xbox console altogether. But you can, perhaps, expect Microsoft to shift focus towards the PC.
“There probably will be a next generation,” Pachter said, “but it is likely to be smaller.”
3. Microsoft buys Valve, thus acquiring Steam (and much more).
Valve’s Steam service, a computer-based storefront and platform for gaming, is huge. Somewhere in the ballpark of 200 million people actively use it every month.
If Microsoft’s looking to the future of Xbox as a computer-based platform that works “anywhere” (instead of only on a dedicated piece of hardware created by Microsoft), buying Valve would certainly be a way to massively bolster that initiative.
Not only does Valve have Steam — which brings a huge chunk of new users and a lucrative storefront — but Valve also owns a bunch of classic gaming IP. The “Half-Life” franchise, for instance, could finally see its long-promised third installment as a big Xbox exclusive.
But Valve is a private company, and there’s no way to know how much it’s worth. Valve takes a 30% cut of Steam sales, on average, and Steam is the most widely-used game store on Earth. “I presume they do around $2 billion in Steam sales, but just a guess,” Pachter said.
All of which is to say one thing: Valve could be outrageously expensive to buy, and it’s entirely possible that they’re not up for sale.
4. Microsoft comes out with a new Xbox, in an attempt to start a new “generation” before Sony.
Microsoft just released a new Xbox One — the $500, extremely powerful Xbox One X — so I’d call this one the least likely possibility.
That said, Microsoft could very well surprise everyone with an early launch of whatever the successor to the Xbox One turns out to be. The Xbox One is coming up on five years since it first launched, which would make this an early sunsetting — game console “generations” tend to last somewhere from 5 to 10 years. This would be an especially surprising move given the recent launch of a significantly updated Xbox One console in the Xbox One X, and even more surprising given what the Xbox One X means for the Xbox platform.
In so many words, the Xbox One X offers a major update to the hardware while retaining compatibility with existing Xbox One games. Games look better, and run better on the Xbox One X, but those same games must be playable on the standard, original Xbox One from 2013.
Think of it like smartphones: You expect your old apps to work on your new phone. Microsoft could be moving toward this approach, where the Xbox One is “The Xbox” and new consoles are simply upgrades. Your game library moves forward with you, and that’s that.
It fits in well with the “Play Anywhere” initiative, but it might be difficult to pull off from a technical perspective — at some point, new games will require newer hardware, which could leave owners of older consoles out in the cold.
5. The Xbox becomes a streaming game platform.
Forget about downloading games altogether: Maybe the future of Xbox is as the Netflix of gaming.
Microsoft’s been working on a streaming service for gaming “that doesn’t require a console,” according to Microsoft’s Phil Spencer, who spoke to Bloomberg last November. There’s already a service named “Xbox Game Pass” that offers a Netflix-like instant library of games on Xbox One, but game’s must be downloaded individually (not streamed instantly, like Netflix).
The new streaming service is expected to launch some point in the next three years, and it’s entirely possible the service won’t require a dedicated piece of hardware made by Microsoft (like, say, an Xbox One) to play games.
Would such a service offer access to a library of games, or would games be sold a la carte? None of that is clear.
There are a few services like this already — PlayStation Now from Sony, for instance — but none have been very successful. PlayStation Now, for instance, suffers from a library composed mostly of old games. Moreover, streaming services introduce technical problems (like network latency) that turn normal gaming into a mess.
These hurdles could be overcome, no doubt, but it’s an uphill battle.